Investors get a reminder that India makes sudden moves too

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Paytm, a pioneer in the country’s shift to mobile payments whose investors have included Warren Buffett’s Berkshire Hathaway and China’s Alibaba Group, has been shaken following an order from India’s central bank that largely crippled its banking affiliate. From Saturday, the bank can no longer carry out most types of transactions. One97 Communications, Paytm’s parent, also owns 49% of Paytm Payments Bank and was relying on it to build new sources of income.

After the Reserve Bank of India’s order, which was issued in late January and cited persistent failures in compliance at the bank, One97’s share price tanked. Paytm is now in damage-control mode. Founder Vijay Shekhar Sharma called the order a “speed bump," and said Paytm and the bank are moving to address the regulator’s concerns.

But with the affiliate’s regulatory uncertainty clouding Paytm’s prospects, the company’s market cap has sunk to around 15% of its valuation of nearly $19 billion at the time of its blockbuster IPO in 2021. “Investors don’t like surprises," said Mohanjit Jolly, co-founder of Iron Pillar, a U.S. venture-capital fund that invests in Indian startups.

Jolly said they have largely steered clear of investing in financial technology startups “because of the regulatory unpredictability." The government of Prime Minister Narendra Modi has emphasized fighting tax evasion and money laundering, which has led to intensifying scrutiny of a financial sector that now includes thousands of fintech firms that some experts say have been lightly regulated. Foreign companies have raised concerns about regulatory surprises in other arenas as well. In its recent list of challenges of doing business in India, the U.S.